Beat the 5th April Deadline......Time is ticking away if you want to do some serious tax planning in this financial year

Year End Tax Planning 

Before we reach the next tax year, it is a good time to ensure you have considered any final planning to take advantage of the current tax reliefs and allowances before the new rates and legislation changes which start on 6 April 2016.

Mitigate the new “Dividend tax”

The overall result for the majority of clients from the new dividend tax willbe 7.5% more tax from 06/04/2016. From 6 April 2016 dividend income over £5,000 will incur tax at 7.5%. 32.5% or 38.1% dependant on your marginal rates of tax. If you are reconciled to the idea of having to pay income tax on dividends, you may consider paying a larger-than-usual dividend this year before the7.5% additional surcharge comes in. If your total dividend income is normally below £5,000 this will result in a tax saving. 

Avoid the SDLT increase on second properties

Complete the purchase quickly on second residential properties prior to 6 April 2016 to avoid the 3% increase on Stamp Duty Land Tax on second residential property purchases.

Pension contributions

Ensure you have made any pension contributions by the end of the tax year as these can’t be carried back. The maximum annual contribution is £40,000.  Additional tax (45%) payers with income in excess of £150,000 will have restricted pension tax relief from 6 April 2016. This relief drops by £1 for every £2 for income over £150,000 so the relief is restricted from £40,000 to £10,000 for taxpayers with income at £210,000 and over. You may have unused relief from the three earlier years which can be used to increase your contribution.

The lifetime allowance reduces from 6 April 2016 from £1.25m to £1million. If your pension fund is expected to be over £1million by the time you retire, you should speak to us regarding protection of your fund value at the higher amount.

Personal Allowance

The personal tax allowance is currently £10,600 and will increase to £11,000 from 6 April 2016. The allowance is withdrawn by £1 for every £2 by which income excess £100,000 so for 2015/16 no personal allowance is available if your income exceeds £121,200. It may be possible to claw back some of the personal allowance by making pension contributions or gift aid donations to reduce your income back down below £100,000.

It is possible to transfer unused personal allowance (between married couples or civil partners) up to £1,060 if the recipient is a basic rate taxpayer and both parties were born after 5 April 1935.

Consider the people in your household, are they all utilising their full personal tax allowance, if not consider the possibility of paying them if they work in your business. Your spouse could share in the rental income of a property via a Deed of Trust transfer of some of the equity in the building.

Capital Gains

Check you are able to make use of your Annual exemption of £11,000, review any losses inherent in your shareholdings which could be crystallised to help minimize any Capital gains tax liability you may have in the year. 

Rental Property

The changes that take effect from 6 April 2016 will be the abolition of the 10% Wear and Tear Allowance on furnished residential properties, from then relief is only given on actual replacement costs, with restrictions if the replacement includes an element of improvement.

From 2017/18 there is a phased withdrawal of tax relief at higher rates of tax on loans and mortgages on residential properties. This not only impacts on higher rate taxpayers, but may push basic rate taxpayers into higher rate by the way relief is applied.

Inheritance Tax

Despite the nil rate band of £325,000 remaining constant, there is additional relief possible on the main residence of the deceased being passed down to a family member. If the whole estate is worth in excess of £2milllion pounds, this additional relief is withdrawn.

Potentially exempt transfers can still be made, but you must survive seven years for the gift to be completely outside your estate. The £3,000 annual exemption for gifts is still available, together with gifts on marriage. There is also the option for regular expenditure out of income, which is surplus to your needs.

Tax Efficient Investments

Tax relief is available on initial investments and capital gains tax relief available on subsequent disposal at varying rates on Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT). Also you could consider using your Individual Savings Allowance (ISA) each year.

Savings

Banks and building societies will stop deducting tax from interest earned after 6 April 2016. A Personal Savings Allowance will be introduced from this date. Basic rate (20%) tax payers will be able to receive up to £1000 of income such as interest or bond withdrawals tax free. Higher rate (40%) tax payers will be able to receive £500, but additional tax payers (45%) will not qualify for this allowance at all.

 

If any of the above planning ideas are of interest to you or you wish to discuss any of the issues, please do not hesitate to contact your usual contact at Lyon Griffiths Ltd to arrange a meeting to discuss them further.

 

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